Tuesday, May 21, 2013

Apple's profits: 70% tax rate

Congress is grilling Apple on it's tax avoidance. The problem isn't with Apple, but with Congress rapacious theft of as much money as it can get its hands on.

The United States is unusual in two respects.

The first is that its corporate tax rate is 40% compared to 24% that is average in the world, and the 0% that economists think it should be. The reason economists believe this is because corporate taxes are double taxation: taxed once when the company earns the money, then a second time when dividends are paid to the stock holder.

The second problem is that, unlike other countries, the United States taxes foreign earnings. This causes another example of double taxation: once in the country where Apple earned the money, and then once again in the United States.

Combined, this means triple taxation. With the current max dividen tax rate of 39.4%, the corporate tax of 40%, and the average foreign tax of 24%, the total tax bill becomes 72%.

In other words, for every dollar Apple earns in profits, 72 cents goes to the taxman and 28 cents goes to the stock holder.